Disappointment
Just two weeks after my optimistic letters to shareholders, everything changed. On January 20th, 2014, I expressed my views in a formal letter to Amir Elstein, which speaks for itself:
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Thank you.
Dear Amir,
Re: Placing an Item on the Agenda of the February 24th, 2014 General Meeting
I was surprised and disappointed to learn that Teva Pharmaceutical Industries Ltd. (Teva) published last Friday a notice for a shareholders meeting on February 24th, 2014 (the General Meeting), without placing on the agenda thereof the important matters we discussed. Hence, I have no choice but to send this letter.
In our meetings, I expressed my view that Teva’s Board of Directors is over-sized, lacks required global pharma experience and is plagued by conflicts of interest and governance failings. Teva and the newly appointed CEO need a board that can offer pharma-seasoned advice, counsel and mentoring. A board that is independent and free of conflicts of interest.
Furthermore, Teva’s Articles of Association are a collection of clauses that promote entrenchment of its Board members rather than the interests of Teva and its shareholders, or solid corporate governance.
To ameliorate director entrenchment issues, I intend (together with one or more additional shareholders), to approach Teva formally to place on the agenda of the upcoming General Meeting a resolution amending Teva’s Articles of Association, as follows:
1. To reduce the size of Teva’s board to 12 directors (without Board discretion to set another number), cancel the staggered-board structure and substitute the present nomination process, which obstructs shareholders’ ability to propose director-nominees, by an alternate process for enabling shareholders to put forward candidates for election (articles 58 and 60).
2. To obliterate excessive obstacles to shareholders’ ability to call a shareholders meeting or place items on the agenda of a shareholders meeting (articles 34 and 37).
3. To require a supermajority of 2/3 (two thirds) for amendment of certain articles, while requiring an ordinary majority for the amendment of the remaining articles (article 106).
Adoption of the resolution above shall require an ordinary majority (the default majority under the Companies Law), as article 106 of Teva’s Articles of Association is null and void.
Notwithstanding, as I have stated to you in the past, I believe it is far more desirable for Teva, its shareholders and its directors, that such a resolution be initiated by Teva’s Board rather than be imposed by shareholders. Therefore, we will make no formal demand to place the above resolution on the agenda before Thursday, January 24th, 2014.
If Teva’s Board refuses to place the above resolution on the agenda, that would constitute an act of further promotion of entrenchment on Teva’s Board, rather than promotion of the interests of Teva and its shareholders and an apparent breach of the directors’ duty of loyalty.
The documentation published for the upcoming General Meeting is presently under review and the right to express a position thereon, and any other rights, are expressly reserved.
I look forward to hearing from you and to jointly working towards Teva’s return to responsible governance, professional management and, above all, to enable Teva to realize its true market value. It is imperative to restore investor confidence not only in Teva but also in Israel. As the flagship of Israeli industry, as goes Teva so goes Israel. The proposed change will be good for both.
Sincerely,
In response, just two days later (and well within the deadline set in my letter), I received a letter from Phil Frost, assuring me that Teva is dealing with our concerns. It was accompanied by his formal Letter to Shareholders:
